Why it pays to be one of the first franchisees in a new network

The perfect pilot scheme and why it pays to be one of the first franchisees in a new network:
By Andy Cheetham, MD Lime Licensing Group, franchise consultants and recruiters

On the upside

There are downsides of course and I’ll refer to those a little later on in this article. However let’s be positive for a moment because if you are thinking of joining “a fledgling franchisor” then I have some good news. You will probably get a discounted fee, maybe a larger territory (if there is one to start with) and a lot more help and support than the later guys will. There – I’ve said it, despite what you’ve been told – not all is equal in franchising.

For now, consider, if you will, the situation of a new franchisor. They’ve paid a consultant a small fortune to work with them, they’ve got everything ready over several months and now they are advertising the franchise for sale. Nothing has come cheap for them up to this point. You are amongst the first ones to say yes and you’re sat in training with your new nervous colleagues. Congratulations are in order because you are now the most important person in the company.

The first franchisees buy on potential, all the rest buy on reality

Your success is paramount. Everything that follows in the nationwide dreams of new franchisors is influenced by how you and your new network friends perform. If you struggle then there is no positive endorsement to anyone else who’s thinking of joining, new recruits will shy away. So, new franchisors often over deliver to you and therefore secure your vital vote of confidence to the next group who join. This is all very good news for early adopters!

When myself or one of my colleagues at Lime Licensing launch a new franchise we often discount the fee. It reflects your increased risk because there’s no other franchisees for you to speak with to verify the potential of the business. Not that you should automatically assume you have the same ability as another franchisee of course! So a discounted fee rewards your faith in the new franchise and it’s management team.

There may be other perks too but I’ll save that for when you are actually in this position. Call me!

On the downside

There’s an increased risk, but you’ve already figured that out for yourself haven’t you? To a degree the franchisor doesn’t truly know how well the network is going to do. How genuinely replicable is the business in the hands of a stranger? That’s why franchisors run pilot schemes, no amount of planning replaces real life experience.

I have met franchisors who have told me that they have completed a thorough pilot scheme. I later find out that the one-man franchise format has benefited from additional sales people, a huge advertising budget, massive marketing and PR support, no territorial restrictions and numerous experienced industry veterans chipping in. A single person owner operator doesn’t have that so the potential growth and earnings are already wrong. It’s a good idea to check this if you are meeting an inexperienced franchisor.

Connected Individuals

What I would call ‘connected individuals”, is where a member of the franchisors staff is paid a salary to run the test franchise. These ‘connected individuals’ must operate in the same way as a new franchisee to be credible, not all do though. What the franchisor has done is effectively engineer a positive endorsement for the business since the “franchisee” is unlikely to bite the hand feeds it. The second franchisee on board (or the first paying one) will take comfort in knowing that he is not the first franchisee to join the network even though he or she is in reality.

A perfect pilot franchise

A perfect pilot should be run as close as possible to what a franchisee will be doing. With the same restrictions, geographically or otherwise as those who follow and crucially allowing for a royalty to be paid. There has to be room for a royalty and still a profit remaining. If there isn’t room for a royalty the business is doomed for the franchisors and also the franchisee.

The franchise network is ready to launch once a pilot has established the commercial potential
of what’s on offer. I am often asked how long a pilot should be run for? The answer isn’t a set period of time it is whenever the pilot has proved that the business can be operated in the hands of a newbie. It’s also worth thinking about what seasonal trends exist and is the market going up or down? It may already be the case that what a company is doing is so closely aligned to franchising anyway that their current experience is actually sufficient.

An effective pilot helps all parties to do well. The Franchisor learns a lot about how they will coexist with the franchise partners and the wrinkles in the business model get ironed out along the way.

Where’s your pilot?

I am often asked where pilots come from in the first place. In my experience, most are connected individuals. If not, they are usually entrepreneurial people taking advantage of a ground floor discounted opportunity.

In multi brand franchise companies, pilot franchisees often come from the other company owned networks because the franchisor already knows the competence and motivational level of the individual concerned. This only really works though in non-owner operated models. Another route for a multi brand franchisor is to go back to those successful franchisees who may have done well and already sold their franchise.

Successful franchisors can avoid early growing pains by having a pilot scheme in place, it’s usually better than learning as they go along! For a franchisee though being an early adopter can have great benefits provided that there is an acceptance of more risk.

For more information on this subject contact:
Andy Cheetham, Lime Licensing Group: 01274 662001 Mobile: 07782 115 993 andy@limelicensinggroup.co.uk

Why it pays to be one of the first franchisees in a new network
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